In this second part of our SME digital opportunities article, we look at how an online eco system of integrated software can make your life easier, free up your time and minimise effort. You needn’t be tied to your desk or office – you can set it up so you access your data from anywhere, using your tablet, laptop or phone. What’s not to love?
Among the functions that can be integrated are:
Start by subscribing to an online accounting software solution.
By moving your books to the cloud, you can get rid of the tedium of manual data entry that sucks up your time and resources. Typically, you’d connect the software to your business bank account so that your transactions flow automatically from the bank to the books. Because you can access your accounts from any web browser or from an app on your phone, your current financial position is at your fingertips at any time.
This includes things like income and expenses, and assets and liabilities. Most systems come with tools for quoting, invoicing, managing bills and so on.
What about security, you ask?
The information in the cloud is encrypted, similar to a bank’s, so only people with the login can see the data. However, you may want to include your accountant or other business adviser.
As it’s online software, there’s nothing to install or update – all your data is backed up automatically. More saving of time and effort.
Online point of sale software
Next, to your online point of sale software which can integrate a breakdown of all items sold, quantities, discounts, surcharges and payments (by tender type such as cash or EFTPOS) with your accounting system. This includes a summary of the amount of tax applied to each transaction.
No matter how much you sell, success ultimately comes down to the collection of the cash. Common traps include having no accounts receivable staff member, no collection process or late invoicing. Debt collection software makes the process simpler, more timely, and a lot less work.
For example, all account information will be stored in one central place, available on one screen. It allows you to automate invoices and attach PDFs to email. You’ll be able to automate sending invoices to your customers faster. You can automate your comms so customers they know they’re getting close to terms, when they’ve reached the due date, and later by how far they’ve passed it, without you having to do anything at all. This also helps to manage any disputes down the track.
By leveraging technology and integrating online tools, you can greatly improve efficiency and productivity, which should also lead to an increase in sales.
Inventory
Inventory is the next small business challenge that can be conquered by an integrated digital app. There are various simple apps that let you ditch the spreadsheets and keep track of inventory items, even on the go via a tablet, smartphone or laptop.
The key components of an inventory management app are the tracking of the two main warehouse functions, receiving and shipping, but other features and optimisation can be added. For example, it can automatically enter dates and use your device’s camera to read barcodes.
HR (human resources) software
Finally, to HR (human resources) software. Many small business owners may think of HR as being something that only big companies do, but any business with staff has admin to manage. HR software helps you keep track of those tasks, data and processes.
Simple processes like annual leave and sick leave allowance, absence tracking, training and company policies can be automated via this software. No more hunting around in insecure filing cabinets for the employee records when they ask you for some time off!
At the more sophisticated end, it can help you manage onboarding and payroll, and streamline processes to increase overall productivity and work management.
In conclusion
Each of these individual software options are useful in themselves. By leveraging the technology and integrating these online tools, you can greatly improve efficiency and productivity, which should also lead to an increase in sales.
In business, as the saying goes, if you do what you’ve always done, you’ll get what you’ve always got.
You’ve probably been told numerous times that digital technologies and tools for your business will save you time, streamline your whole operation, and can enhance your business growth. Not to mention potentially reducing your stress levels.
So what’s holding you back?
According to an analysis by Deloitte Access Economics into the Benefits of Small Business Digital Engagement, 31% of small businesses said they were put off by what they perceived as the high cost of digital. A surprising 20% said they just hadn’t thought about it. And 13% said they were not sure how to use digital tools.
So let’s tackle these three inhibitors.
1. Costs
Of course there will be initial set-up and training costs. Yet failing to adopt technology will be far more expensive in the long run.
Essentially, the more digitally sophisticated a company is, the more likely it is to have higher revenues, better profits and increased staff potential.
Deloitte found that for every step they take up the digital ladder, businesses earn more revenue per employee. Businesses who had an advanced level of digital engagement, earned an average of 60% more revenue per employee, than those who had only a basic level of digital engagement.
2. Hadn’t thought about it
What are your business priorities? Ask yourself how you can enable those priorities with digital technology.
Whatever you feel you’re spending too much time doing, there will almost certainly be a digital solution for it. Would you rather focus on growing your business and sales, instead of working to produce reporting or doing admin?
A cloud based accounting platform will enable you to do just that. As long as you have an internet connection, cloud tools can be accessed from just about anywhere. You only pay for the tools that you use, and you can scale them up to meet your requirements as you grow.
A major benefit of cloud accounting platforms is being able to work collaboratively on them. Using an accounting platform that your accountant can access to review is much more efficient. It will give better, quicker reporting that’s more likely to be accurate. So when talking to potential lenders or strategic partners, everything you need is at your fingertips.
Businesses who had an advanced level of digital engagement, earned an average of 60% more revenue per employee.
3. Don’t know how to use digital tools
Maybe you’re still using time-consuming, manual processes, for example for inventory management.
Yes, technology can be initially daunting, but there are literally hundreds of experts out there. You may well have one among your family, friends or business advisers who’d be willing to walk you through a particular digital platform that could help you. The platform companies themselves can provide someone to give you a demo and answer all your questions. There are plenty of training programs to help you and your staff get on board.
Finally, the holy grail is software integration. Digital tools can of course be run separately, but integrating them – connecting them together – means even greater efficiency. You’ll have better oversight and be able to use analytics reports to help you monitor your business.
Here’s an example of software integration from business.gov.au:
Think of the huge time savings, and the ability to prevent you or your staff from updating wrong information.
No matter how small your business, digital technologies can help you build and be better at what you’re doing. Digital is no longer a “nice-to-have” for your business, it’s essential.
In a welcome piece of great news, Australia has signed the world’s largest comprehensive free trade agreement, known as the Regional Comprehensive Economic Partnership (RCEP), along with 14 other Indo-Pacific countries.
Collectively, the 15 countries who have signed up to the Agreement make up about a third of the world’s population and around a third of global GDP ($26.2 trillion).
Despite the current political and trading tensions with China, Australian businesses can celebrate this development, which will offer trading and commercial opportunities for Australian companies of all sizes. The RCEP could not have come at a more important time given the scale of global, economic and trade uncertainty.
Eight years in the making, the Agreement covers trade in goods and services, plus investment, economic and technical co-operation. The participating nations are Indonesia (who led the negotiations), Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand and Vietnam.
Expected to be ratified in early 2021, the Agreement will progressively lower tariffs over the next 2 decades and allow more free movement of goods. It will create new rules for electronic commerce, intellectual property, government procurement, competition, and SMEs.
According to Trade Minister Simon Birmingham, “This agreement covers the fastest growing region in the world and, as RCEP economies continue to develop and their middle classes grow, it will open up new doors for Australian businesses and investors.”
There will be improved export opportunities for Australian businesses, especially the financial services sector, education, health, engineering and other professional services. It will further integrate Australian exporters into a booming part of the globe.”
Simon Birmingham – Australian Federal Trade Minister
So what’s in it for your business?
When the Agreement is finalised, the main benefits for Australia will be:
To prepare for this, SMEs will need to restructure their global supply chains and look at transitioning to new regionally integrated networks. It will also be essential that your business is digitally and technologically enabled, with the corresponding level of preventative measures on cyber security.
According to PwC’s recent report ‘Asia Pacific’s time’, to enable companies especially SMEs to expand regionally as well as adopt new technologies, governments must play a role in supporting upskilling, as well as enabling access to capital and expertise.
Take some time to think about what opportunities the RCEP can offer your business, and what you need to do to reach these potential markets.
Some recent headlines generated by one or two of the big banks made chilling reading. At least one bank has implied that they’re looking to wind up small and medium enterprises (SMEs) that are perceived as “not doing well”.
The bank in question undoubtedly has its reasons for that approach, and must appease shareholder concerns about the bottom line. At the same time, SMEs would probably prefer to feel that their lender is working with them, not against them.
Part of the problem is the model that’s used to determine the worth of a business. The major banks conduct fundamental credit analysis on largely historical financial information (a largely rear vision mirror approach to the business) sometimes supplemented by a cash flow projection for a limited view of the road ahead.
This type of analysis hones in on certain financial ratios that are seen as an indicator of the business’ health and the likelihood of servicing the debt.
Small businesses are so much more than just numbers on a spreadsheet, and it takes an experienced relationship banker to find deeper insights. Looking at a business holistically tells us a lot more about not only where the business has been, but where it’s going.
Relationship Banking is essentially a combination of fundamental credit analysis and algorithmic lending with the overlay of experienced credit personnel, who work closely with a client to understand their business.
Understandably, many SMEs’ past experiences with bankers, or just general fear, can make them avoid talking to their lender if they’re concerned about the business.
Chances are, if one of our small business clients is doing it tough, we probably already know because of our existing strong relationship with them and their adviser. If we’re not working with them to help get through it, we soon will be.
In over five years as a business lender, we’ve found that businesses in potential strife who talk to and work with us, end up turning the corner. Those who are sweeping it under the carpet, and having sleepless nights – that can be a different story.
Small businesses are so much more than just numbers on a spreadsheet, and looking at a business holistically tells us a lot more about not only where the business has been, but where it’s going.
Our focus is always on helping SME owners assess the reality of the business situation and understand the possible solutions. Then the options can be discussed, tested, and implemented.
We often advise our clients to go over their business plans to find ways to:
While it’s true that not every single business in trouble can be saved, it’s only a tiny minority who are beyond help, and usually because the owner has left it too late.
Small business owners are generally resilient, driven, and professional. Many have poured their heart AND their brain into their business. Lenders must be ready and willing to help find solutions, not closures.
Business continuity planning (BCP) is often somewhere towards the bottom of a business’ “to-do” list, and tends to stay there. 2020 has brought into sharp focus the need for BCP to jump off the list and into practice. If you haven’t re-evaluated most aspects of how your business works in the light of COVID-19, now is a good time to start.
You may be thinking, just let me get over this crisis, before I worry about how to cope with the next one. But a continuity plan is best put together in ‘peacetime’ – it’s too late once the next disaster hits.
Survival can often depend on a single factor: preparation. A robust business continuity plan can help you cope more easily when a crisis arrives, and minimise the damage your business could suffer. It allows you to be better placed to take advantage of any economic opportunities, either during or after the crisis.
So what exactly should a best-practice BCP entail, and how can you prepare well for the next shock to the system? There are various off-the-shelf BCPs available through risk management consultancies. Whether you decide to go that way, or build your own, the key elements will include:
Finally, think strategically. If your business has a strong balance sheet and good capital position, this could be a good time to think about mergers and acquisitions.
Putting a BCP in place will bring benefits over and above preparing your company for future negative events. It will almost certainly mean you learn more about your business, and maximise your chances of success.
Of the many changes we’ve seen in the past 8 months, which will stick and which won’t? The massive reduction in air travel could well be temporary. The growth in demand for online shopping and services, will likely be a keeper.
Do you have digital and data mining processes in place for detecting and analysing further changes in customer behaviour? These will occur in response to a range of developments like the lifting of shutdowns, border re-openings, travel bubbles and increased hygiene practices.
According to The Harvard Business Review studies on habit formation suggest it takes a minimum of 21 days to learn a new habit, but in reality the average timeframe is closer to 66 days (just over 2 months).
By now, the pandemic’s severe disruption has lasted long enough to cause fairly major shifts in habits that had previously been the foundation of demand and supply.
According to Australia Post, between March and August 2020, over 8.1 million households shopped online, an increase of 16% when compared to the same time last year. Importantly, over this same period more than 900,000 new households shopped online for the first time. That’s 35.4% more than the same period in 2019.
Travel habits have undergone a huge shift. With the explosion in online conferencing, it’s hard to see how business travel will ever go back to pre-pandemic levels.
Domestic tourism could boom in the next one or two years, only to drop off in favour of long-haul destinations once (and if) a vaccine is developed. There’s potential for huge pent-up demand with overseas tourists thronging back to Australia when interstate and international travel is permitted again. Or will they become travel-shy, and look to explore much more of their own respective backyards?
For a kind of precedent, we can look to the 9/11 terrorist attacks. According to the Harvard Business Review, the aftermath of the attacks caused only a temporary decline in air travel. Instead, they created a lasting shift in consumer acceptance of the trade-off between privacy and security. The result has been permanently higher levels of screening and surveillance.
COVID could potentially create long term greater expectations of hygiene and health screening practices.
Investing in your digital offering is a priority like never before.
A new McKinsey Global Survey of executives has found that since the pandemic, companies have accelerated the digitisation of their customer and supply-chain interactions, and of their internal operations by an average of three to four years.
Most of the respondents said that their companies implemented at least temporary solutions to meet many of the new demands, much more quickly than they would have thought possible before the crisis.
At the same time, the respondents expect most of these changes to be long lasting and are now making the kinds of investments to ensure they will stick.
Think about your business’ digital processes whether they’re going to serve you into the new normal. Look at things like:
In part 2 next time we’ll look at business continuity planning and preparing for future pandemics.
Banjo recently hosted a webinar on practical ways to improve your business’ Cash Conversion Cycle. AJ Singh from ezyCollect joined us to talk about their product. However, this article discusses the practical things any business can do, regardless of which product or solution is used.
The Cash Conversion Cycle (CCC) is the capacity of a company to turn its goods and services to cash. It’s calculated by a simple formula of length of time, measured in days, for a company to convert the investments and assets in its inventory into cash generated from sales. The shorter the CCC the better.
If you are unsure what your CCC is in terms of inventory, debtor and creditor days, you can easily learn the method to calculate CCC by following steps described in The Balance. Or discuss with your accountant or advisor.
Banjo’s Andrew Colliver said that if your business is currently doing it tough, there are three basic strategies to employ:
Much of the second point – improving business processes – is about reducing your CCC, and getting your inventory days down. A benchmarking survey by global consulting firm PwC found the average CCC for large corporations is 37 days, while for small business it is 84 days.
How can you get that average of 84 days down to something more manageable? AJ Singh said that while there’s no silver bullet, improving your CCC is about doing many small things beautifully. Key to this is assessing the risk of your customers.
You will need access to data that will enable you to make assessments of your customers based on facts, such as their credit behaviour. Companies like ezyCollect work with credit reporting bureaux such as ilion or Dun and Bradstreet, to access data on each Australian company and calculate their risk level.
Having done a risk assessment of your customers, don’t set and forget. Continue to assess the risk regularly, and use the actionable insights gained from that assessment.
Another tactic is to get smarter with options for your customers to pay you. Data shows there is a trend to customers paying by credit card online, after 5pm. To serve this, give them one or two click options in payment methods, for example by including a Pay Now button in your email. This helps take away the friction from the process, making it easier to get paid.
According to AJ, research has shown that 30-40% of customers pay on the first 2 ‘nudges’ or reminders. The remaining 60% pay following a phone call (the 3rd or subsequent nudge). The data shows that calling is necessary and it works – so allocate time and resources to that.
At the same time it’s important to communicate with customers in a human and empathetic way. Customise the email or SMS messages you send to customers who are behind in payments. Ensure you send a message of thanks when they do pay.
According to AJ, even if a customer is going through a difficult period, it doesn’t necessarily mean you should stop working with them. It’s important to understand who the customer is, and if they are otherwise reliable, work with them on a payment plan.
Improving your CCC is an important next step in your business. If you can reduce your debtor days by as little as 10 – say from 84 to 74, this can improve your net cash position quite dramatically. You can do more in your business with that money, and gain access to more working capital.
For Banjo clients, one month’s free trial of ezyCollect is available. Contact Jason Gatt on 0434 019 725.
In this series, we’ve examined the severe storm that today’s wholesalers and retailers must weather in terms of cashflow issues, as well as some of the way responsible inventory management can help to minimise these problems. Today, we are going to be focusing on measurement, and introduce some of the key metrics retailers and wholesalers can use to keep on top of their cash flow.
In simple terms, the cash conversion cycle – or CCC – is the length of time, measured in days, taken for a company to convert the investments and assets in its inventory into cash generated from sales. There may be other resources which are also factored into these calculations, but, for most businesses, the bulk of this cashflow will be coming from stocked products in inventory. And this is important – as a business owner, you invest in products because you want them to sell and generate profit for your organisation; understanding how quickly this is achieved is vital.
So, the quicker you can convert invested cash into end returns and profits – i.e. the lower the ratio of the CCC – the better.
Calculating the CCC means considering three distinct stages of the cashflow conversion process.
Firstly, the existing inventory level is taken into account, and we consider how long it will take for a business to sell off its inventory. This is represented in the calculation as Days Inventory Outstanding – or DIO.
DIO = (Average inventory / COGS)*365 days
Secondly, the calculation examines the current sales and the time taken to collect cash generated from these sales. This is the Days Sales Outstanding figure – or DSO.
DSO = (Average Accounts Receivables / Revenue)*365days Thirdly, the calculation focuses on the current outstanding payables relating to the business. This usually relates to money owed from the company to its suppliers for the current inventory. In terms of the calculation, the figure is the time period, in days, for the company to pay off this debt, and is represented as Days Payable Outstanding.
DPO = (Average Accounts Payable / COGS)*365 days To complete the calculation, we use the following formula;
Cash Conversion Cycle (CCC) = Days Inventory Outstanding (DIO) + Days Sales Outstanding (DSO) – Days Payables Outstanding (DPO)
or;
CCC = DIO + DSO – DPO
Getting these three smaller calculations right is vital, however, and these must be completed before the cash conversion cycle can be gauged.
What is it that makes the cash conversion cycle such an important metric for your business? There are actually two key factors here. The first is that CCC is a clear indicator of efficiency in handling and managing working capital assets, particularly critical assets such as inventory. The second is that CCC offers a viewpoint from which to gauge liability management; i.e., how effectively is a company able to pay off its current liabilities.
Most contemporary financial reporting focuses on quick and current ratios, designed to measure how quickly an organisation can sell its inventory to make way for more stock. However, the CCC takes things a step further, measuring how quickly the company can turn this inventory into sales and then turn these sales into receivable cash, making this ratio a far better demonstration of company liquidity.
The CCC also helps us to identify where cashflow issues are coming from. The longer the inventory remains unsold, the longer it takes to collect the accounts receivables. When we factor in a shorter payment window for debts to company suppliers, we can deduce that cash is being tied up in inventory, and available cash is being quickly depleted as trade payables are managed. Over time, this trend will squeeze the available cash a company can draw upon, greatly reducing liquidity.
This is why the CCC’s individual components are so critical to business. Business owners can use these smaller calculations to spot positive and negative trends in the way in which their company manages its working capital. When the CCC ratio is lower, there is less need to borrow additional capital, and more opportunity to achieve pricing discounts through direct cash purchases on materials. There is also an increased capacity for growth and expansion. This is what we should be working towards.
Let’s look at how CCC works. As an example, John is a wholesaler selling bathroom accessories to large residential developments. John purchases his inventory from one main vendor and pays off the outstanding balance on accounts within 30 days to achieve a discount. The inventory turnover rate of John is 4 times a year, and he collects accounts receivable from large property developers generally within 45 days on average.
This translates to;
Days Inventory Outstanding (DIO) – 90 days
Days Sales Outstanding (DSO) – 45 days
Days Payables Outstanding (DPO) – 30 days
DIO + DSO – DPO = 105 {compare to average SME at 84 days} So, John’s cash conversion cycle is 105days. In other words, it takes one hundred and five days to get from paying for inventory to receiving the cash from the sale.
PWC’s working capital study highlights how the CCC is strongly favorable for large organisations compared to smaller businesses. This is driven by things such as better processes, superior systems and most importantly positive payment terms leveraged by simply being large. According to the PWC report the average CCC for large enterprises is 37 days (just over a month) compared to 64 days for a mid-tier enterprise and a staggering 84 days (nearly a quarter of a year) for small business. A significant difference.
Based on the above, at a minimum, John can look to improve his current CCC from 105 days to a minimum of 84 days (as suggested by PWC). This can be achieved by focusing on supply chain management to reduce inventory levels, debtor collection (offer discounts for 7-day payment or offer online settlements) and negotiating better payment terms.
Over the course of this series, we’ve really got to grips with some of the cashflow issues affecting Australian retailers and wholesalers. We’ve analysed some of the factors which are harming cashflow, and how alternative finance can provide a solution. We’ve also looked at how better inventory management can reduce the strain caused by cashflow, and outlined some of the calculations and metrics you can use to monitor cashflow in your business.
Together, these elements help you to create a robust defence against what is potentially a catastrophic issue. Measure your cashflow, manage and mitigate the factors which impede it, and secure high levels of efficiency and efficacy for your organisation.
The previous article in this series, The Cashflow Gap (Part 1): What’s Causing the Gap, and How Can Retailers and Wholesalers Close It, outlined the problems facing today’s businesses in this sector. In today’s piece, we’re going to take a more positive view, and examine how retailers and wholesalers can manage this widening gap through inventory management.
Recognising the signs of a poor Cashflow
Before we can act on cash flow problems, we first need to recognise them. By applying certain calculations to our inventory, we can keep a watchful eye on the early signs of cash flow issues. Once we identify them, we can stop them in the act.
Calculate your inventory cashflow
Something you need to know is if your inventory will be able to meet the demands placed by your client. The calculation here is simple –just examine this year’s inventory balance alongside last year’s inventory balance. If the balance has decreased, year on year, this represents cash inflow – i.e. you have exchanged inventory items for cash. If there is an increase, this indicates unsold items, and a cash outflow, both of which can lead to problems.
Understand your stock turns and calculate inventory turnover
It is important to understand the number of stock turns you are seeking to achieve as a business. For instance, some retailers focus on 4 turns a year whilst a wholesale distributor may focus on only 2 turns a year.
Inventory turnover is basically the time it takes for you to sell your entire inventory. Use the following calculation.
Inventory turnover = Cost of goods sold / (0.5 x Opening inventory + 0.5 x Closing inventory)
If the result is 4, for example, this means you completely sell out and replenish your inventory four times a year. This number will help you to recognise whether your stock levels are too high or too low so you can adjust accordingly.
Understand inventory in real-time
Insight and understanding are key elements of modern business, particularly as the business landscape becomes increasingly data-driven and data-oriented. However, it is not enough just to know your inventory and your stock levels. You need to know this information in real-time.
This means deploying a solution that gives you up-to-the-second updates on stock levels. This gives you the power to enhance your customer experience and boost the efficiency of your replenishment procedures, while also giving you direct insight into how cash flow is manifesting itself on the warehouse floor.
Emma & Tom’s is a proudly Australian-owned business offering healthy minimally processed fruit products. They were experiencing a rapid growth and were required to manage multiple inventory locations. Dealing with fresh foods required zero lag in operations and inventory. They made a decision to implement an ERP system that enabled them to effectively manage their inventory. This resulted in a 30% growth year on year growth.
Implement ‘Just In Time’ model to streamline your supply chain
Wastage and shrinkage have an enormous effect on cashflow. If your stock is lying around for weeks or months in a warehouse or on a shop floor, this is just increasing the likelihood of shrinkage and reduced profits.
A Just in Time (JIT) supply chain model can help in this regard. Ordering in products or materials at each stage in the process, so they arrive ‘just in time’ to be used and then sold to customers, means that this latency period is eliminated and wastage is greatly reduced. The knock-on effect is improved cashflow at your end.
Pioneered originally by Toyota in the 1960’s, JIT inventory control is used for ordering parts when they receive new orders from customers. While JIT supply chain model works well for mid to large enterprise businesses, it may not work for small businesses. Supply-management consultant Johnson argues that small businesses don’t have the purchasing power or the linear demand frequency that is required for adopting JIT model. However, enterprise resource planning software solutions such as SAP Businessone are now becoming popular among small and mid-size businesses. SAP Businessone’s real time data analytics tools helps business owners get a clear picture of their supply chain at every level. Therefore, simplifying the entire supply chain process and helping businesses adopt a JIT methodology.
Better flexibility with supplier
Your suppliers are business people just like you and so they too understand the difficulties businesses can encounter when it comes to cash flow and inventory management. Aim to develop good relationships with your suppliers and to bring about a situation in which they are happy to work with you to provide the terms you need to get cash flow problems under control.
It may be necessary to renegotiate credit terms with your supplier, giving you more time to pay for any outstanding inventory bills you may have. This, in turn, provides you with additional breathing space when it comes to managing inventory cash flow. However, as mentioned, suppliers are business people too, with their own issues and their own bills to pay. As such, all negotiated terms must be mutually beneficial.
Work with suppliers who deliver on time
Which products are your best sellers? Which products are flying off the shelves and into the hands of customers? Which products are taking longer to shift? Knowing this is key to gaining a firm grasp on the management of your inventory.
From here, you can turn your attention toward your suppliers. For example, if a supplier is delaying sending out stock that flies off the shelves and needs to be instantly replenished, this is going to lead to delays, which will in turn harm cash flow. In this case, you should consider working with someone else. On the other hand, if the stock is a slow-burning seller and is difficult to find elsewhere, it may be worth continuing to work with the seller. It all comes down to understanding product demand and your inventory needs.
Facilitate and incentivise instant payments
We may consider invoice lag to simply be a fact of life. We deliver the goods our clients need, we provide the invoice, and we wait. However, this is not always the case – it may be simply that the facility for instant payment is not readily available. No one likes unpaid bills hanging over them. You may find that making it easy for your customers to pay instantly via credit or debit card significantly reduces your cash flow issues.
You may also decide to offer discount programs and other incentives to encourage this kind of instant payment, although you must make certain that these schemes do not erode your profit margins too greatly.
Manage your cashflow
Some suppliers require a 30-50% upfront payment on ordering. A combination of debt facilities and trade refinance facilities can help small businesses to manage the inventory sales conversion pipeline.
Cash flow is exactly what it sounds like – a flow of cash. It is not always necessary to receive a full payment upfront but you do need to ensure that the cash is flowing towards you at a predictable and manageable rate. This can be achieved through factoring.
For example – X Company receives an order for $1,000 of deliverables, which are sold with a 20% discount. They receive $800 up front, and the further $200 is delivered on a payment plan which is carefully managed and monitored. Adherence to the payment plan may result in X company offering a further discount once all cash is recovered if incentivisation becomes necessary.
